If you’re on the hunt for small-cap biotechs that could be big winners next year, Amarin, MannKind Corp., and 22nd Century Group need to be on your radar right now.
Small-cap biotech stocks, or companies with valuations ranging from $300 million to $2 billion, can generate truly astonishing returns on capital in exceptionally short periods of time. Several of the best-performing biotech stocks within the past few years, after all, started off as under-the-radar companies with exceedingly low market capitalizations.
That being said, small-cap biotechs can also be tremendously risky assets to own, given that these types of companies tend to be either working on unproven technologies or still in the initial stages of a commercial launch for a key new product.
The small-cap biotechs Amarin Corp. , MannKind Corp. , and 22nd Century Group, for instance, are perfect examples of this high-risk, high-reward theme. While all three of these companies could be gearing up for an absolutely monstrous run higher in 2018, they also each face a plethora of headwinds that might derail their juicy value propositions going forward.
As such, I think it’s worthwhile to consider if any of these speculative biotech stocks are worth buying right now — or alternatively, if their risk profiles are simply too steep at this stage in the game.
Are cigarettes a thing of the past?
The new FDA commissioner Scott Gottlieb wants to make cigarettes a thing of the past because of their well-documented negative impacts on human health. In a recent announcement, for instance, the agency said that it wants to reduce the level of nicotine in combustible cigarettes to non-addictive levels — citing their authority under the under the Family Smoking Prevention and Tobacco Control Act to do so.
This proposed regulatory action prompted some analysts to recently upgrade their outlook for the small-cap plant biotech company 22nd Century Group in a big way (up from $3.50 to $11.50 per share). That’s because 22nd Century Group is presently developing low-nicotine cigarettes and smoking cessation aids that could benefit tremendously from the FDA’s latest attempt to extinguish the cigarette industry altogether.
That being said, there’s little reason to think that big tobacco is going to passively accept the FDA’s hard-line stance on nicotine levels in combustible cigarettes. Moreover, it’s hard to see why smokers would pivot to low-nicotine cigarettes when other alternatives, like vaping or e-cigarettes, are likely to still be available. 22nd Century Group’s low-nicotine tobacco pitch has nevertheless captured the imagination of investors lately — evidenced by the 175% appreciation of its market cap so far this year.
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